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Buying Commercial Property that houses my business

Investor from Wyckoff, New Jersey

posted over 3 years ago

I own a successful small business that's located in a small retail strip. We have just over 50% of the square footage, and there are three other business located there.
I would like to buy the property but I believe the value is around $1.35M. I don't have nearly the cash I would need to go the conventional 30% down route.
I need some advice on how to creatively finance this deal. I'd like to keep my business where it is long-term and would love to own the property.

from Olathe, Kansas

replied over 3 years ago

Hello Vincent....I am far from an expert on the SBA 504 loan but I think your loan might be a good fit. I would reach out to Chris Hurn with Fountainhead Commercial Capital. He has been in the 504 space along time.

I understand that you can get into the property with 10% down.

"SBA's regulations on leasing require that the small business occupy at least 51% of the rentable property if the 504 project is for an existing building and at least 60% of the rentable property (with the intent to move into at least an additional 20%) if the 504 project is new construction.

Eligible Borrowers:

For-profit, non-publicly traded businesses

Tangible business net worth (including affiliates) not to exceed $15 million

Average net income of the business not to exceed $5 million over the previous two years

Investor from Wyckoff, New Jersey

Investor from Goodyear, Arizona

replied over 3 years ago

Hi,

Currently own my property ( in a strip mall) where my small business is occupying one of the retail suites (on our 4th year now), I'm on SBA 504 loan (25 years) and since I already passed the 3rd year and realized that I don't need the space anymore (nature of business changed - we have more online sales than walk-ins) can I lease my suite out?

from Olathe, Kansas

I would guess the loan covenants would spell out your on going obligations via owner occupancy and subleasing. The intent of the program is owner occupied real estate so my guess is the loan docs might be strict about that option.

I would recommend speaking with a good real estate lawyer in your area to evaluate your options. The other option is to evaluate refinance with a good mortgage broker to an investor loan but that would require significantly more equity.

Investor from Goodyear, Arizona

Vendor from Denver, Colorado

replied over 3 years ago

Originally posted by @Vincent Priore :I own a successful small business that's located in a small retail strip. We have just over 50% of the square footage, and there are three other business located there.

I would like to buy the property but I believe the value is around $1.35M. I don't have nearly the cash I would need to go the conventional 30% down route.

I need some advice on how to creatively finance this deal. I'd like to keep my business where it is long-term and would love to own the property.

Were you able to find financing for this project? There may be a way to purchase your space with less than 10% down. You will need to occupy at least 51% with your business. Let me know if you are still putting together a financing package since I may be able to help.

Vendor from Denver, Colorado

Currently own my property ( in a strip mall) where my small business is occupying one of the retail suites (on our 4th year now), I'm on SBA 504 loan (25 years) and since I already passed the 3rd year and realized that I don't need the space anymore (nature of business changed - we have more online sales than walk-ins) can I lease my suite out?

Christine,

I have not reviewed the SBA 504 Authorization in detail recently but I am sure there is some sort of equivalent to a "material adverse change" in the either the SBA's document or your conventional lender's note. I have done a number of SBA 504 deals where the owner has vacated the property and kept as an investment but am not aware of a situation where either the SBA or the conventional lender has tried to call the note due under this type of loan covenant. Most correct answer is to refinance the note to conventional terms but otherwise as long as you keep paying on the loans I doubt much will happen.